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Governor’s May Budget Revision. Themes for the May Revision. It’s all about the economics Revenues are improving at a much slower rate than expected in January Immense pressure on the State Budget and competition for limited resources

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Governor’s May Budget Revision

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Presentation Transcript
themes for the may revision
Themes for the May Revision
  • It’s all about the economics
    • Revenues are improving at a much slower rate than expected in January
    • Immense pressure on the State Budget and competition for limited resources
    • The revised Budget has a lot of moving parts again this year
    • Bottom line: Best case is flat funding for education – and maybe a lot worse
  • In January, the Governor’s tax initiative was expected to fill the revenue gap
    • In May, revenues have fallen, and, if the initiative passes, it fills only half the gap
  • Education policy, expectations for student performance, and funding for schools are not aligned
  • Today’s funding level may be our new reality for the foreseeable future
the may revision
The May Revision
  • The May Revision first recognizes that January’s projected $9.2 billion State Budget shortfall has grown to $15.7 billion in May
    • Even if the Governor’s tax measure passes in November, there will still be a significant State Budget problem
  • As a result, the Governor proposes:
    • More cuts to the non-Proposition 98 side of the Budget
    • More manipulations to reduce Proposition 98 actual funding
    • But, in the end, planned K-12 funding is much like the January proposal
      • Flat funding if the taxes pass
      • Big cuts if they don’t
    • 2012-13 will not be a good year for education funding
      • And failure of the taxes would make it a disaster
the governor s major proposals
The Governor’s Major Proposals
  • Temporary taxes
    • More reliance on temporary taxes than ever
  • Cash deferrals
    • Deferrals are the balancer; Proposition 98 gains disappear by reducing deferrals
  • Weighted Student Formula (WSF)
    • Grade span adjustments and additional revised add-ons
  • Flexibility proposals
    • Still alive – no changes from January
  • Transitional Kindergarten (TK)
    • Governor reduces savings estimate, but still proposes elimination of the mandate
no new funding for schools
No New Funding for Schools
  • Despite claims of:
    • $6 billion more for schools!
    • 16% increase for schools!
  • Our district, our schools, our classrooms do not get one more dime whether the Governor’s taxes pass or not!
  • Our gain is the absence of yet another cut
  • The public is confused
    • The state says Proposition 98 is growing
    • But local schools are making massive cuts and affirming layoffs
  • The state has not provided a single new dollar to local schools since 2007-08
the california economy
The California Economy
  • The California economy is recovering slowly as well
    • The state leads the nation in exports, especially to the “Pacific Rim” countries, with total exports increasing 11% in 2011
    • The high-tech sector is also a strong advantage for California
      • The Facebook initial public offering (IPO) alone could add $1.5 billion in tax revenues in 2011-12 and 2012-13
    • The state’s housing market, however, continues to be a drag on growth
  • Like the nation, California’s employment growth has sputtered this spring
    • In March, the state added 18,200 jobs and the unemployment rate increased slightly to 11%, up from 10.9% one month earlier
    • The state has added about 385,900 jobs since the recovery began almost three years ago
      • Remember: the recession wiped out about 1.3 million jobs
risks to the revised budget proposal
Risks to the Revised Budget Proposal
  • Even if the Legislature adopts the Governor’s May Revision as proposed, the State Budget would face huge risks in 2012-13
  • Voter approval of the Governor’s tax initiative is uncertain at best
    • The measure has yet to qualify for the November ballot
      • While more than one million signatures have been submitted, more than 800,000 must be found valid in order for the initiative to be placed on the ballot
    • The latest poll found that about 54% of those surveyed supported the measure, a slim margin at this stage of the campaign
    • A competing measure sponsored by Molly Munger and the Parent Teacher Association (PTA) could confuse voters and draw support away from the Governor’s initative
  • The Facebook IPO could fall short of expectations, resulting in a loss of General Fund tax revenue
current year revenue limits
Current-Year Revenue Limits
  • For 2011-12, revenue limits were reduced as a result of the midyear “trigger” reductions
    • 0.198% reduction to districts’ undeficited revenue limit, or about $13 per ADA on average
    • 0.65% reduction to districts’ undeficited revenue limit, or about $42 per ADA for all school districts, related to the $248 million cut to home-to-school and special education transportation
      • This change was enacted by Senate Bill 81 (Chapter 2/2012)
      • The 2011 Budget Act originally would have eliminated one-half of districts’ transportation funding for 2011-12
  • The midyear “trigger” reductions were one-time and these funds are restored for 2012-13
revenue limits for 2012 13
Revenue Limits for 2012-13
  • For 2012-13, the May Revision recognizes the statutory cost-of-living adjustment (COLA) of 3.24%
  • The May Revision fully funds ADA growth of $169 million in 2012-13 for school districts and county offices of education
  • The deficit factor to eliminate the statutory COLA and provide flat funding in 2012-13 is 22.272%, after restoration of the one-time reductions in 2011-12
base revenue limit after deficit factor
Base Revenue Limit After Deficit Factor
  • Apply the 2012-13 deficit of 22.272% to the undeficited base revenue limit



Example for Escalon Unified School District

Funded revenue limit

= $6,718 x (1 - 0.22272)

= $6,718 x 0.77728

= $5,222

Funded Base Revenue Limit


2011 12 funded revenue limit vs 2012 13 may revision for the escalon unified school district
2011-12 Funded Revenue Limit vs. 2012-13 May Revision for the Escalon Unified School District
  • The 2011-12 revenue limit after the deficit, but before the midyear cuts is $5,221 per ADA
  • The amount received after the one-time midyear cuts is $5,166 per ADA
  • The midyear cuts are to be restored in 2012-13, resulting in flat funding

22.272% deficit

19.754% deficit

$5,222 Funded Base Revenue Limit

$5,166 Funded Base Revenue Limit

what is the cut if the taxes fail
What Is the Cut If the Taxes Fail?
  • SSC had been recommending $455 per ADA as a planning factor if the taxes fail
    • $370 as a revenue limit cut
    • $85 for 100% loss of transportation funding
  • The DOF announced an estimate of $398, but then revised its deficit factor
  • For now, districts that plan for $441 should be safe
    • If the DOF revises its estimate, SSC will revise and report a new estimate
  • May Revision proposes school district authorization to reduce school year by up to a total of 15 days over the 2012-13 and 2013-14 school years
what should we plan for
What Should We Plan For?
  • Planning will again be difficult because of the potential for major changes at midyear
    • Collective bargaining will need to start early
      • Until we know the results of the November tax initiatives, plan for an ongoing loss of about $441 per ADA
      • Begin negotiations about if and how the school year will be shortened if the taxes fail
    • Forecasting cash continues to be a major concern
      • Estimate needs at the high end and borrow accordingly
      • Avoid the need for a second borrowing to save on issuance costs
    • Plan to offer Transitional Kindergarten
      • Move ahead with planning to accommodate all students affected by the shift in the entry age for Kindergarten
      • Delay restoring positions specifically for TK unless you are already committed to offering it
what should we plan for1
What Should We Plan For?
  • If the Governor’s tax initiative passes:
    • Plan for the WSF to move forward with phase-in beginning in 2012-13
    • Remember, under this plan you get no new dollars, but you do not take another cut
  • If the Governor’s tax initiative fails:
    • Plan to make a $441 per-ADA cut on an ongoing basis
    • The WSF will not move ahead
    • Hold on to reserves – without the taxes, we expect the Governor to propose another cut in January 2013 to address the structural deficit
  • If the PTA/Munger initiative passes, be prepared to implement at schools
  • Clearly articulate the problems that face your district and the solutions you have in mind to address them – keep your options open